Fee-Splitting Concerns

It is important to review your compensation and referral models to prevent inadvertent violations of fee-splitting regulations.

Fee-Splitting Concerns

Commission-based pay is widely used by businesses to motivate employees and contractors. In the medical aesthetic industry, referrals from other medical professionals and complementary nonmedical providers, such as hair salons, health centers and spas, can reap valuable benefits as well. But, in some cases, these types of compensation and referral models run afoul of fee-splitting or fee-sharing regulations, which can put your medical license in jeopardy.

According to the American Medical Association (AMA), fee splitting is defined as the “payment by or to a physician solely for the referral of a patient.” The AMA has explicitly stated that fee splitting is unethical, and its reasoning is simple: A physician’s main purpose is to provide the proper care and treatment of the patient—not to perform unnecessary procedures or refer patients to other providers in order to gain a monetary benefit.

Based on the AMA’s position, many states have enacted statutes that strictly prohibit the sharing of fees between physicians and nonphysicians. For example: New York State Education Law §6530 includes among the definitions of professional misconduct:

Directly or indirectly offering, giving, soliciting, or receiving or agreeing to receive, any fee or other consideration to or from a third party for the referral of a patient or in connection with the performance of professional services;

Permitting any person to share in the fees for professional services, other than: a partner, employee, associate in a professional firm or corporation, professional subcontractor or consultant authorized to practice medicine, or a legally authorized trainee practicing under the supervision of a licensee.

The penalties for offering or receiving consideration from a third party for performing professional services can be steep. The New York law authorizes the suspension, revocation or annulment of a healthcare practitioner’s license plus other penalties if he or she:

…directly or indirectly requested, received or participated in the division, transference, assignment, rebate, splitting or refunding of a fee for, or has directly requested, received or profited by means of a credit or other valuable consideration as a commission, discount or gratuity, in connection with the furnishing of professional care or service…

California has a similar prohibition. Its Business & Professions Code Section 650 states:

(a) Except as provided in Chapter 2.3 (commencing with Section 1400) of Division 2 of the Health and Safety Code, the offer, delivery, receipt, or acceptance by any person licensed under this division or the Chiropractic Initiative Act of any rebate, refund, commission, preference, patronage dividend, discount, or other consideration, whether in the form of money or otherwise, as compensation or inducement for referring patients, clients, or customers to any person, irrespective of any membership, proprietary interest, or co-ownership in or with any person to whom these patients, clients, or customers are referred is unlawful.

Put simply, a physician cannot split fees with a nurse, technician, esthetician or any other unlicensed professional irrespective of whether that person is an independent
contractor or employee. Similarly, nurses and physician assistants cannot split their fees.

From the East Coast to the West Coast and in between, there are varying regulations that prohibit the sharing of fees or commission-based payments based on patient volume. There are also some notable exceptions to the fee-splitting prohibition, such as when a doctor refers a patient to another doctor in the same group practice that divides all fees at the end of the year.

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Fee-Splitting and Medical Aesthetics

In the context of a medspa, the practitioner must first consider the Corporate Practice of Medicine Doctrine (CPOM), initially developed by the AMA. It prohibits laypersons or business entities from employing licensed physicians. In some states it is permissible for a practitioner to be hired by a business entity (e.g., Connecticut permits laypersons to hire physicians to perform medical treatments), but these states are few and far between. Therefore, arrangements between a nonphysician-owned medspa and a medical professional must be carefully analyzed by an experienced healthcare attorney.

In addition to CPOM concerns, medical practitioners (MDs, RNs, NPs and PAs) cannot split fees with a medspa owned by a nonphysician, nor can they receive a volume-based payment—meaning that payment varies based on the number of patients treated or referred—from the medspa. In short, if you are acting as a contractor providing medical aesthetic services in a nonmedical facility, you cannot be paid on a per-patient basis.

The restriction on sharing fees or offering commissions based on patient volume also extends to other business dealings. According to the AMA, “A physician may not accept payment of any kind, in any form, from any source, such as a pharmaceutical company or pharmacist, an optical company, or the manufacturer of medical appliances and devices, for prescribing or referring a patient to said source.” Its position is that such a payment “would violate the requirement to deal honestly with patients and colleagues.”

It is important to note that offering commissions based only on retail sales is typically permissible if the sale is not related to medical products.

Referrals and Nonmedical Providers

Some practices cross-promote with local boutiques, salons or healthcare centers in order to gain new business. They often offer rewards to the referring business such as gift cards, discounts on services or other forms of payment. This type of arrangement (i.e., payment for a referral) is precisely what the anti-kickback and fee-splitting statutes seek to prevent. Therefore, this type of cross-promotion with rewards should be avoided.

Do keep in mind that state laws vary on the issue. Therefore an analysis of your state regulations is critical when developing cross-promotional events and compensation models to ensure that the arrangement does not violate anti-kickback or fee-splitting prohibitions.

For practices and medspas that would like to offer a bonus-based structure to encourage their teams to reach goals, there are numerous ways in which monetary bonuses can be structured in order to minimize the risk of any potential violation. For example, performance-based bonuses can generally be offered as long as they are not based on the volume of patients seen. Instead, the performance bonus should be based upon clearly identified goals set in advance, such as patient satisfaction or job attendance.

There are also other methods of motivating staff that can be just as successful as money. Reward them with small, unexpected gifts for a job well done. Gift certificates or tickets to a movie or sporting event are surefire ways to keep your staff happy. You can offer extra time off or latitude in work schedules. You may also be surprised to know that rewarding employees with free lunch or snacks at the office are key factors to employee happiness. But one of the biggest motivators is having a positive relationship with your staff. Take the time to meet with them and point out positive aspects of their work when they do a good job.

Keeping an active pulse on your staff’s feelings about how the office is running will enable the practitioner to make changes as needed. It will also show the staff that you are invested in their success and care about their interests. In turn, they will become more invested in the overall well-being of the practice and its continued success, and you will steer clear of any appearance of impropriety.

Allyson Avila is a partner at the national law firm of Gordon & Rees Scully Mansukhani. Contact her at 845.406.2935, aavila@gordonrees.com.

Photo copyright Getty Images.

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